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May the fourth be with you as you enter the final quarter with cautious optimism

The last three months of the year represent the busiest time for the channel as targets are aimed for and the year goes down as a success or failure

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The IT industry and UK channel partners have faced a range of obstacles in 2022, including supply chain issues, soaring inflation, massive spikes in energy prices, the lingering after-effects of the pandemic and the continuing effects of Brexit.

As they prepare to enter the fourth quarter, what do vendors, distributors and partners expect from the final three months of 2022? Will they enjoy healthy growth, or will it be a case of battening down the hatches? Are there any factors that could help to spur growth? What are the issues most likely to act as a drag on the market?

David Watts, managing director and senior vice-president of Tech Data UK and Ireland, acknowledges there is potential for a sustained period of higher inflation which could have an impact on business and consumer confidence. But he believes organisations will continue to invest in digital transformation and the IT solutions and services that make that possible.

“It’s only quite recently that the many projects that were put on hold during the pandemic have been restarted, and now that we are also seeing an easing of product constraints, most of those projects can move forward,” he observes.

While consumers may exercise more caution, Watts believes they will continue to buy new technology for personal use. “To a greater or lesser degree, we have all become hooked on and dependent on technology in our everyday lives. It’s important to us, and when you need a new notebook, tablet or smartphone, it’s always going to be a high priority,” he says.

Watts highlights the distributor’s trade-in programme as a way for partners to offer technology and for customers to invest in IT, which also “dovetails nicely with sustainability efforts”. The company’s Tech-as-a-Service proposition is gaining more traction from customers “looking for new ways to fund IT spending” and is “seeing much higher levels of interest in both of these initiatives”, he adds.

“It’s only quite recently that the many projects that were put on hold during the pandemic have been restarted, and now that we are also seeing an easing of product constraints, most of those projects can move forward”
David Watts, Tech Data UK&I

Watts thinks the bigger question is what might happen if we do not see some kind of economic recovery in the medium term. “We’ve seen in the past three years that it’s impossible to predict what might happen at a global geopolitical level,” he says. “We should remain positive but cautious about the future. For businesses and consumers, spending on technology is, and will remain, high on the list of priorities.”

Expectations of growth

The consensus within IT appears to be relatively optimistic. Tim Britt, director of sales and channel for Central Europe at Dropbox, says vendors, partners and distributors “need to be prepared for a quarter of growth” in the fourth quarter. He argues many opportunities and projects have been pushed into the last quarter of 2022 and into 2023. “All parts of the channel ecosystem need to be prepared for this,” he adds.

Britt justifies this optimism by arguing that many businesses are seeking to take advantage of the benefits of hybrid and virtual working, with an increasingly distributed workforce. “For members of the channel ecosystem, it will be about offering a product selection which offers a balance, aids remote work and collaboration, but also manages time zones,” he states.

If his argument is borne out, then growth will be a key factor moving into the final quarter and relationships need to be front of mind. “Nurturing strong relationships helps to build on our understanding of users and the products they need,” says Britt. “Vendors, partners and distributors can leverage this approach to better set themselves up for business success.”

Paul Emsley-Martin, vice-president of partners and alliances at Sage UK, says UK partners are “positive about the future”, adding that “the coming year holds great opportunity for partners and vendors to work together to add more value for customers, while creating new revenue streams to support growth”.

That optimism is reflected in the company’s own research, which found that nearly half of resellers felt they were equipped with the core solutions needed to deal with growing customer demands.

“The community is very forward-looking, and many are in the process of expanding their business and partnerships to add greater resilience,” he adds. Up to half are strengthening their relationships with other channel partners, two-fifths are hiring new talent and a third are committed to retraining their current team.

Proceeding with caution

But outside factors are definitely a concern. The Sage survey found up to two-fifths of resellers are concerned about the impact rising inflation could have on their customers and how that could potentially affect revenues, while a third also expressed concerns about the impact of rising inflation on business and supplier costs.

Roy Russell, CEO of Ascertus, describes the market as “buoyant as organisations’ technology requirements post-pandemic have changed – and the good news is they have adequate budgets assigned for the projects too”. He claims the company’s “new business pipeline is healthy and consistently growing, with most customer conversations revolving around how we can help them with business transformation”.

But Russell strikes a note of caution, pointing to “a small minority of organisations [that] are displaying reluctance to sign on the dotted line – admitting to being cautious on account of global and national events that are completely out of their control – the Ukraine war, inflation, the energy crisis, a new prime minister and government, and so on”.

He believes some of this reluctance is being fuelled by media reports that “run the risk of becoming a self-fulfilling prophecy if organisations don’t take decisions for technology acquisition and other business projects based on tangible commercial requirements”.

“While the level of ‘stability’ of yesteryears isn’t there today, life goes on. Perhaps a change in mindset is needed – organisations need to be grounded in their ethos and committed to their business goals, basing decisions on organisational requirements with confidence”
Roy Russell, Ascertus

Russell draws a parallel with the pandemic where professional services firms “recognised the need to transition to the cloud and had budgets to do so – and yet many didn’t start projects until later in the year, when they realised that they simply could not continue in a holding pattern. As a result, we did a year’s worth of business in the fourth quarter of the financial year 2020-2021”.

He seems sanguine about the state of the world heading into the last quarter of 2022 and into 2023. “While it’s true that the level of ‘stability’ of yesteryears isn’t there today, life goes on. Perhaps a change in mindset is needed – organisations need to be grounded in their ethos and committed to their business goals, basing decisions on organisational requirements with confidence,” says Russell.

Areas of focus

Kyndryl partner and financial services expert Chris Davis says whether IT businesses enjoy healthy growth or batten down the hatches in the fourth quarter will depend on the individual company. Some will need to focus on cost and efficiencies.

“Depending on their business model, some will be particularly vulnerable to energy cost inflation,” he comments. “Every business will need to look at profitability and focus on how to deliver that. Ultimately, this is a combination of risk management, cost management and revenue delivery. No company can ‘shrink’ their way to greatness, so there needs to be a focus on growth and revenue generation, as well as efficiency and risk management.”

One area that seems a clear candidate for growth is cyber security. Mike Herman, EMEA vice-president of channel sales at Netskope, accepts that “economic uncertainty is making it difficult for clients to budget, not knowing what lies ahead in the immediate future”, but he stresses that “all companies looking at their existing operations understand the impact a security breach could have on their business”.

Herman argues partners that have invested heavily in cyber security “should double-down on security, stress the importance of keeping ahead of bad actors, inform clients of the latest developments and threats, and pay attention to security applications and data in the cloud”.

Ed Baker, vice-president of global channel sales at Trellix, agrees that there is “a lot of uncertainty in the economic environment and market, yet this can often be a perfect time for vendors, distributors and partners to take market share and grow”.

“Helping customers to manage their essentials – like patching, identity and security – can be an effective way to keep revenues going while doing the right thing by your customers”
Katie Clouse, JumpCloud

He adds that channel partners with a cyber security play should remember “that any uncertainty can potentially open new doors for threat actors. Identifying those security hotspots fast could be an opportunity for growth”.

Katie Clouse, vice-president for global MSP sales at JumpCloud, highlights consolidating multiple solutions and reducing licence costs as a way to reduce spending without sacrificing security, for example. “Helping customers to manage their essentials – like patching, identity and security – can be an effective way to keep revenues going while doing the right thing by your customers,” she says.

One potential drag on the market is that, according to JumpCloud’s own findings, a quarter of companies were actively preparing for recession earlier in the year, and this may grow as more companies are affected by spikes in energy costs and more problematic markets.

But Clouse is optimistic the effects can be overcome. “Companies can’t skip security, so they may look at how to change their approach and reduce costs over time. For MSPs, this can be an opportunity to step in,” she says.

Jonathan Whitley, vice-president for the UK and Northern Europe at Watchguard Technologies, says there has been substantial growth in the cyber security market in the past few quarters, and he expects that to continue. “Post-pandemic, companies are again looking to invest in things they held off on during the lockdown,” he adds.

Whitley highlights a number of drivers for this. Distributors are still sitting on sizeable backlogs because of component shortages, but as they ease he says it will drive growth across all areas, including cyber. “In addition, as businesses get accustomed to hybrid work environments, they will begin to plan better for this, which will result in more and more investment around securing remote workers, cloud resources, MFA [multifactor authentication],” he says.

Skills an ongoing issue

The skills gap may also affect performance in the fourth quarter. Dean Porter, regional vice-president for UK and Ireland at WithSecure, says the lack of skilled cyber security professionals, combined with ongoing inflation and supply chain issues, is leading to increased interest from channel partners and users towards consolidating their cyber security solutions and technologies.

“This consolidation is not only relieving pressure in terms of resources and manpower, but will also help the channel better support customers and act more quickly against cyber threats and attacks by reducing multiple points of contact – and technologies – down to one single security centre,” he claims. “Not only is this more cost-efficient, but it improves operational efficiency and can help them be more efficient overall from a business perspective.”

Kyndryl’s Davis describes the technology skills gap as one of the greatest issues facing organisations across the globe – and one that has been worsening for the past decade. “Technology has continued to play an increasingly prominent role in organisations across almost all industries, creating more and more jobs which require digital skills, which candidates don’t necessarily have. This means organisations are finding it increasingly difficult to fill their roles and secure new talent,” he says.

He says Brexit and the pandemic have exacerbated the problem and, in light of the skills shortages, the Great Resignation continues to cause concern across all industries.

Rising above challenges

Rachel Rothwell, UK and Ireland senior regional director at Zyxel Networks, notes that the IT industry has continued to grow despite the challenges it has faced over the past years. “Zyxel and its partners have seen consistent growth throughout the year, particularly with LTE equipment for mobile and remote connectivity, and we expect this to continue into Q4,” she says.

Businesses have been forced to look for cost consolidation solutions to combat the looming economic pressures, she states, and channel partners should consider this as an opportunity rather than a threat.

“Many distributors and reseller partners are offering trade-ins, hardware-as-a-service and leasing options which are easing the financial burden for businesses. The ingenuity of the channel is not to be underestimated, and as long as vendors and partners adapt to the current market trends, they should continue to witness growth in Q4,” says Rothwell.

In any case, the last quarter is the busiest time for business-to-business and business-to-consumer markets. Pointing to the cap on energy price rises proposed by the UK government, along with expected tax cuts, she argues these measures should give businesses the confidence to continue investing in their tech and infrastructure. “With this in mind, I think vendors and distributors should be cautiously optimistic about their growth in Q4,” she says.

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